Starbucks Corporation PESTLE Analysis - Case Study Example

Starbucks Corporation Name Professor Institution Course Date Starbucks Corporation Background In 21st century, coffee has grown to be part of several people’s lifestyle. Whilst being compared to the manner in which the business used to be way back in the 1950s, a lot of changes have taken place. Several competitors now offer products such as Cappuccinos, Espresso, Café Lattes, Macchiato and Frapuccinos among others in big cities across the world. Starbucks was founded in 1971 by three academicians consisting of Gordon Bowker, Zev Siegel and Jerry Baldwin in Seattle Washington. Schultz, the current Starbucks CEO joined the coffee shop in 1981 taking responsibility of marketing the company. Quelch (2006) says that following Schultz visit to Italy, he established the potential the coffee bar could have in this country and started on setting up a coffee shop, II Giornalle. His concept of entry into Italian market proved to be effective and in turn, he managed to acquire Starbucks in 1987. As a result, every branch of II Giornalle coffee bar Schultz managed to establish were restructured to Starbucks with the belief Starbucks name was more recognized. Thomson, Shah & Thomas (2006) assert that Afterward, Schultz embraced expansion strategy with the aim of opening several Starbuck outlets in the US. Table of Contents Starbucks Corporation 2 Background 2 Table of Contents 3 1.0 Introduction 4 2.0 Starbuck’s expansion strategies and methods 5 3.0 Starbucks Company ‘PESTLE’ Analysis 6 3.1Political 6 3.2 Economic 7 3.3 Social 7 3.4 Technological 8 3.5 Legal 8 3.6 Environmental 9 3.7 Current position and future performance of the company 9 4.0 Conclusion 10 5.0 References 10 6.0 Appendix 12 1.0 Introduction According to Peng (2008), the business environment is changing so fast that a company must find various strategies to compete in the environment in which it operates. One of the methods is expansion and entry into new markets. Therefore, the company has grown and now operating 20,891 Starbucks stores in 62 countries across the world with 13,279 outlets in US alone (Loxcel 2013). Opening several branches helps it to counter its rivals and gain control of the target markets. A closer look at financial performance of Starbucks indicate that although the firm has undergone increased profits in the past years, the revenues gained by the firm do not look good because of different factors which consists of increased competition (Thomson, Shah & Thomas 2006). The objective of this report is to analyze methods by which Starbuck has grown in size and the reasons it might have had for choosing the methods and also look into political-legal, economic, socio-cultural, environmental and technological (PESTLE) factors shaping up the external environment Starbucks is operating. 2.0 Starbuck’s expansion strategies and methods Starbucks has grown by using differentiation, targeting and customer service strategies amongst others. From its establishment to March 2013, the company had launched 20,891 outlets in 62 countries globally, which stands for roughly 122% growth in number of outlets (Loxcel 2013). The company is not just attempting to expand the market place operated in its core business, but continuing to raise the number of services offered in its core business. Starbucks maintains introducing new products of iced and hot handcrafted beverages, fresh food, new choices of baked and store and desert merchandise, like espresso machines, grinders, coffee brewers and coffee cups. Starbucks has turned out to be a coffee sector leader using a differentiation strategy. It is propelled towards offering high quality of coffee and its product and outstanding customer service to its customers. Starbucks remains successful at adopting differentiation strategy for three significant grounds. The expansion method involves Starbucks choosing a big city in every region that fulfills its demographic outlook and creating first a center within the city with a group of experts. This group is now charged with the duty of establishing 20 or several outlets in the first two years of start of the operations (Thompson & John 2006). To further improve the expansion efforts in every region, Starbucks appointed a regional vice president for every region who oversees and oversees manages the expansion plan. Thompson & John (2006) state that the expansion plan had made a $700,000 and average of revenue in1995 than the $427,000 produced in 1990 prior to the launching of expansion strategy. To succeed internationally, companies ought to evaluate and decide on several strategic plans. Starbuck conducted a SWOT analysis to evaluate its Strengths, Weaknesses, Opportunities, and Threats before target other markets around the world. The objective of carrying out a SWOT analysis was to help Starbuck Company to determine key internal and external elements that could have affected the desired result. Conducting a SWOT analysis to international expansion strategy demonstrates why Starbucks have been doing well. Some strength like brand reputation and recognition allow Starbucks to attract and retain its customer even in new markets. Thus, the expansion of outlets to other states is more promising and easier. Another method strength that the company uses to expand is its application of technology to create a platform where they can communication and exchange information with its customers (Kotler & Keller 2011). Starbucks uses technology to attract more clientele outside its usual customers. This also helps them to market their product in other countries. Effective brand and large consumer base have helped them to target other markets and become successful over a short stint (Quelch 2006). 3.0 Starbucks Company ‘PESTLE’ Analysis In order to identify various environmental factors that influence the performance of Starbuck the report uses PESTLE Analysis to assess the company current position, the current economic climate and forecast the future performance of this company in the UK. 3.1Political The company experience high taxation placed on coffee beans in various countries producing the coffee and this generally mean Starbucks have to pay a higher charge for the coffee they are buying. Any rise and fall in level of taxations in the sector are almost indeed ultimately conveyed to the consumer. Different trade issues normally affect Starbucks mostly when exporting and importing coffee. When a country’s administration places a tariff, it not just leads to an effectiveness decline in performance for Starbucks but hefty income transfers can turn conflicting with equity. One of the political factors that affected coffee world market is 9/11 bombing. This affected trade relations USA and the countries from the East. Another factor according to Thomson, Shah & Thomas (2006) is the pulling out of the US from the global coffee agreement which set regulations of coffee sold in other countries; this has had a major influence on Starbucks services. In addition, political stability in Zimbabwe a coffee producer has had huge effect on Starbucks operations. This is farmers cannot concentrate on production of high quality coffee beans. 3.2 Economic Thompson & John (2006) argue that an increase in rates of interest implies that investment and growth strategies are postponed leading to declining sales for Starbucks Company and its suppliers. Rise in the cost of living have made consumers to lack disposable income to use on luxury consumption like taking coffee outdoors. Slow economic expansion rate in nations where Starbucks operates normally affects the company sales because of decrease in coffee demand caused by low buyer purchasing power 3.3 Social Since coffee is an accepted product in many if not all societies, this has made it simple for Starbucks to market its coffee in different countries compared to the time the business was started (Thompson & John 2006). Income distribution also affects Starbuck sales. In most cases, the company normally sells their product to the customers who have higher disposable income. Coffee is a luxury product therefore its target markets are people or places with high disposable income. Rice in the cost of living normally affects spending resulting low sales in Starbuck outlets. 3.4 Technological To attract customers Starbucks has installed most of there premises in the European nations with free WI-FI internet. This ensures that customers access internet and play games while still waiting for their orders to be processed. In 2009, the company installed free WI-FI in most of their outlets in the UK (Boon 2009). The WI-FI is customized and only customers having Starbuck cards can access the internet bringing customer loyalty. Customers in Germany can also get a 2-hour free WI-FI access via BT Openzone while in Austria and Switzerland customers gets 30 minutes with their voucher. Claire (2010) states that in 2010 Starbucks started offering WI-FI in every store in the US via AT & T and information by means of partnering with Yahoo. This has made the company competitive against its rivals like McDonald’s which also offer internet access via WI-FI (Claire 2010). In 2012, Starbucks in collaborated with Duracell Powermat to install charging surfaces in which customers can recharge their tablets, phones and Smartphone while in outing (Charlene 2012). This forms good customers’ service strategy through technology. 3.5 Legal Health, safety, tariff and tax regulations are the different legal aspects that have and will influence Starbucks operations. A case in where the company has been accused of tax avoidance in various European Markets including UK and Ireland. Tom (2012) claims that in 2012, Starbucks underwent criticism following investigation by Reuters that found out that the corporation just paid £8.6m in corporation tax over 14 years, in spite of having more than £3bn in sales in UK. 3.6 Environmental Environmental pollution and planning authorization are the major environmental issues that Starbucks faces in its operations. In various markets, Starbuck may find it difficult to acquire planning permission to set up coffee bar. For instance, the company had to deal with a case where it was accused by local authorities of setting up many coffee bars in UK with no planning permission (Stephens & Jonathan 2008). 3.7 Current position and future performance of the company The forces that shape up the coffee industry are a major element that each competitor falling in the coffee industry specialty has to consider. Even though, Starbucks remain a dominant player in coffee industry other competitors like McDonald’s are rising so fast that Starbucks has to change its strategy quite often to sustain the competition. The coffee sector is growing despite the rising coffee prices from 108.38 U.S. cents per lb in 2009 to 184.25 U.S cents per lb in 2013 (International Coffee Organization Prices 2013). Nearly 200 percent rise in the coffee bean price in the last two years has harmed the overall revenues of Starbucks. The cost has been increasing, not just because of the coffee prices itself, but due to the supply chain and the present economic situation across the world. Recently Starbucks had to increase coffee costs internationally, but particularly in the UK, owing to increasing coffee prices and various ingredients (Baertlein 2011). Even though the coffee prices had to be increased internationally owing to the high demand of this product and the production, a solid position for the Starbucks still exist due to its large consumer base. The coffee industry is anticipated to keep on growing throughout to 2015 and even afterwards in various emerging markets across the world and Starbucks is expected to capitalize on this opportunity (Lingle 2007). Even if the US and UK markets starts to decline, Starbuck is likely to target other emerging markets with specialty in coffee industry. The future performance of Starbucks in UK depends on its targeting strategies. 4.0 Conclusion From the expansion and PESTLE analysis, it is apparent that Starbucks require conducting comprehensive research in various factors in its target markets. Comprehensive measures should be put in place by Starbucks in order improve and strengthen its presence in order to maintain strong brand reputation within the market. 5.0 References Abraham, C 2006, Strategic Planning: A practical Guide for Competitiveness Success, Emerald Group Publishing, Bingley. Baertlein, L 2011, Starbucks sees higher 2011 coffee costs, Reuters: Business & Financial News, Breaking US & International News | Reuters.com. Retrieved January 29, 2011, from http://www.reuters.com/article/2011/01/27/usstarbucks-idUSTRE70P8DE20110127 Boon, K 2009,"Free Wi-Fi at all Starbucks for Reward Card holders", The London Insider, Retrieved October 24, 2010 from http://www.london-insider.co.uk/2009/09/free-wifi-at-all-starbucks-for-reward-card-holders/ Charlene, J 2012, http://agbeat.com/business-news/starbucks-vending-machines-and-the-future-of-business/ Claire, CM 2010, Aiming at Rivals, Starbucks Will Offer Free Wi-Fi, Retrieved June 14, 2010, from http://www.nytimes.com/2010/06/15/technology/15starbux.html?_r=0 Hoover's, Inc. 2006, D&B Company, viewed 22nd June 2013 from http://hoovers.com Isla, G 2004, UK leisure Industry - Market Overview, UK, Key note Plc. International Coffee Organization Prices, 2013, International Coffee Organization - News from the ICO. Retrieved June 29, 2013, from http://www.ico.org/coffee_prices.asp Kotler, P & Keller, K 2011, Marketing Management, (14th Ed.), London, Prentice Hall Lingle, TR 2007, State of the specialty coffee industry: Small Business Advice and Resources from AllBusiness.com. Retrieved January 30, 2011, from http://www.allbusiness.com/manufacturing/food-manufacturing-food-coffeetea/4510403-1.html Loxcel 2013, viewed 22nd June 2013 from http://www.loxcel.com/sbux-faq.html Peng, W 2008, Global Strategy, USA, South – Western Cengage Learning. Quelch, Y 2006, Starbucks: Delivering Customer Service, Boston, Harvard Business School. Stephens, A & Jonathan, P 2008, Starbucks faces eviction as 'wrong kind of shop', Evening Standard Starbucks 2012, FY12 Annual Report, viewed 22nd June 2013 from http://www.starbucks.com Tom, B 2012, viewed 22nd June 2013 from http://uk.reuters.com/article/2012/10/15/us-britain-starbucks-tax-idUKBRE89E0EX20121015 Thomson, A., Shah, J & Thomas, F 2006, Starbucks’ Global Quest in 2006: Is the best yet to come? Thompson, A & John, E 2006, Starbucks Corporation, The McGraw-Hill Companies, viewed 22nd June 2013 from http://www.mhhe.com/business/management/thompson/11e/case/starbucks-2.html 6.0 Appendix The following figures below shows the market share of corporations in coffee industry. 36 % Starbucks 21% Local Coffee Outlets 12% Internet Cyber Cafes 11% Caffe Nero 9 % Costa Coffee 8% Coffee Republic Source: Isla, G 2004, UK leisure Industry - Market Overview, UK, Key note Plc The following table shows a summary of number of corporation-operated store data in the indicated periods. Source: Starbucks, 2012, FY12 Annual Report, http://www.starbucks.com Read More